Taxation

The Netherlands (Holland) - Taxation

If you are working legally in the Netherlands you will be issued with a SoFi or Social-Fiscal number (sofi-nummer) which will be used to record your tax payments and eligibility for social security benefits. You will need to apply at your local tax office (Belastingdienst) for a SoFi number, after having registered your details on the population register (Bevolkingsregister) at the local town or city hall. To obtain a SoFi number you will be required to submit your registration form along with your passport or EU identity card. Non-EU/EEA/Swiss nationals are also required to submit their Dutch employment contract, work permit and residence permit.

An individual's tax residence status in the Netherlands depends on factors such as the location of their usual residence and that of their partner or spouse, their usual working location, their length of time in the Netherlands and whether they have personal ties in the Netherlands such as a Dutch bank account, local society memberships etc.

Resident taxpayers have to pay tax on all their income from both Netherlands and overseas sources, whether this is employment, investment or other types of income. They also qualify for a wide range of tax deductions. Non-resident taxpayers only have to pay tax on their Netherlands-generated income, including income from employment or business, property, investments or other regular benefits, and do not generally benefit from many tax deductibles. However, non-resident taxpayers can apply to be treated as resident or "partial non-resident" for tax purposes if this is more beneficial to them in terms of tax liability and eligibility for deductions.

Under partial non-resident status, taxpayers are assessed as residents of the Netherlands in terms of their income and allowances, but as non-residents in terms of income from shareholdings, savings and investments. Partial non-resident taxpayer status can only be approved for people who have been posted from another country to work in the Netherlands, who eligible for a tax-free allowance from their employer of up to 30% of their salary to cover "extraterritorial expenses". This is payable for a maximum of ten years, and their employer must pay wage tax on their salary in the Netherlands. People posted to the Netherlands on this basis who subsequently change jobs can continue to benefit from the 30% ruling if they change jobs and continue to meet the eligibility conditions, if they apply within three months of starting their new job.

Employees in the Netherlands are liable for both income tax and wage tax. Wage tax is deducted direct from their salaries or wages, and set against their income tax bill. Income tax is payable on three types of income, defined as

Box 1: taxable income from work and dwellings;
Box 2: taxable income from substantial interest;
Box 3: taxable income from savings and investments.

Income tax is charged on a progressive basis on Box 1 income, at rates ranging from 2.5% to 52% (2007), at a rate of 22% on Box 2 income up to EUR250,000 and 25% on the excess (2007), and at a flat rate of 30% on Box 3 income.

Deductibles which are set against personal tax liability include interest on mortgages, childcare payments, alimony payments and pension contributions. Business expenses cannot be set against personal tax liability. Tax deductions are made in the form of an annual income tax levy rebate, but this can be claimed in advance on application to the tax office, with monthly payments made to a bank account.

The Netherlands has a number of tax treaties with other countries, which mean that the nationals of these countries who are living and working in the Netherlands are not required to pay tax in both countries. Under these treaties, people working in the Netherlands will normally be exempt from paying tax on their income earned there if they are physically present in the Netherlands for less than 184 days in a twelve month period or tax year and if they are paid by a non-Dutch employer. Alternatively, if they are working in the Netherlands for more than 183 days in a year, or for a Netherlands-based employer, they will normally be exempt from paying tax on their Netherlands-generated income in their home country. If not covered by a double taxation treaty, some foreign nationals working in the Netherlands may be covered by agreements which exempt them from paying tax in the Netherlands on overseas-generated income, even though the amount of this income might be taken into account when assessing their overall tax liability in the Netherlands. Specific arrangements for tax exemption between the Netherlands and other countries vary, so it is important to check the details of the double taxation treaty or other agreement which applies in any particular case.

Taxation for Business Owners and the Self-Employed

Business owners are liable for a range of taxes and other payments in the Netherlands, including wage tax, income tax, Value Added Tax (also called Turnover Tax) and Corporation Tax, as well as national insurance payments and employee insurance scheme contributions if applicable. For the self-employed with no employees, there may be a requirement to pay income tax and VAT (Turnover Tax). However, people categorised as entrepreneurs by the Dutch tax office who pay Turnover Tax, are sometimes exempted from income tax, depending on how much work is carried out on a self-employed basis, their turnover and profits, number of clients and other factors. If required to pay income tax, entrepreneurs often qualify for many tax deductions over and above the normal tax levy rebate made to all taxpayers. The deductions are even higher for those setting up a new business. Additionally, those who operate a business from home can claim a deduction for business-related expenses such as utilities.

Turnover Tax or VAT (Belasting oegevoegde Waarde or BTW) is payable on all services and goods in the Netherlands, currently at 6% or 9% depending on the specific goods or services provided. The providers of these goods and services must charge their customers based on the invoices that are sent, and are required to submit a monthly, quarterly or annual Turnover Tax Return to the tax authorities, depending on the nature of their business and level of turnover. VAT payments made to suppliers for the provision of goods and services can be deducted from the VAT owed. There are full or partial exemptions from VAT for those whose business income does not exceed a specified amount, under the Small Business Allowance (Kleine ondernemersregeling).

Private limited companies are also required to pay corporation tax, assessed on the basis of their taxable profits, after deductions. Current rates are 20.0% of the first EUR25,000 of taxable profits, 23.5% of of taxable profits up to EUR 60,000 and 25.5% of taxable profits in excess of EUR 60,000. Most business expenses are deductible. Additionally, any public limited or private limited company which distributes dividends to its shareholders must withhold tax at a rate of 15% on these dividends and remit this to the tax authorities.

Non-EU nationals who move to the Netherlands can apply for exemption from customs duties, VAT and other taxes and charges when importing their personal and household effects, including a car, to the Netherlands, if certain conditions are met. In many cases, the removal firm transporting these goods will apply for the exemption on behalf of the person moving to the Netherlands, and deal with all necessary paperwork.

To be eligible for this exemption, there is a requirement that the applicant must have been living outside the EU for at least a year prior to the move and be establishing a new principal place of residence in the Netherlands. Additionally, the effects must have been owned personally by the person for at least six months, and must be imported to the Netherlands within 12 months of the move. The goods cannot be sold or hired out to another person within the first twelve months of their import into the Netherlands, otherwise the exemption will be revoked.

There is no requirement for EU nationals to apply for this exemption, as they are not liable for customs duties or taxes when moving their personal effects to the Netherlands, with the exception of cars on which a vehicle tax is payable.

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